Thursday, March 3, 2011

Updated January 15th, 2013In all of the coverage of the uprisings in the Middle East, very little has been said about Algeria, next-door neighbour to both Morocco and Libya. This is rather surprising since Algeria has a recent history of anti-government movements and plays a very important role as an oil producing nation, most particularly to the United States.

Algeria is located on the northern edge of the African continent and shares part of the southern coastline of the Mediterranean Sea. Here is a map showing the location of Algeria in relation to its neighbours:

Algeria has a population of 35.4 million people with over 3.5 million living in Algiers, the capital city. The country's official language is Arabic but many people also speak French, a hold-over from the days when Algeria was a French colony. From the 1830s until 1962, Algeria was under the control of the French who encouraged Europeans to settle in their colony and, by the 1880s, the European population of Algeria reached 350,000. During the period from 1830 to the mid-twentieth century, the Muslim population also grew rapidly from 3 million to 9 million, however, political and economic power lay in the hands of the European minority. During the late 1940s and throughout the 1950s, Algerian nationalism began to appear and between 1954 and 1962, a brutal War of Independence was fought between the Front de Liberation Nationale (FLN) and the French Army, ultimately leading to the killing of 12,000 Muslims by the armed forces and police. French reprisals led to the forced resettlement of two million rural Algerians in an attempt to deprive the resistance the support that they needed. Once Charles de Gaulle offered Algerians a vote on independence in 1959, generals within the French Army in Algeria and European settlers rose up against any movement that would sever their ties with France. By 1962, because of the threat of nationalism, three-quarters of the French colonists in Algeria left the country, leaving only 250,000 remaining. On July 1, 1962, Algerians voted overwhelmingly in favour of independence which was granted two days later on July 3, 1962. Over the eight year war, up to 1 million Algerians are estimated to have perished.

Over the next 30 years, the FLN ruled Algeria, much of the time as a one-party military regime. Large farms left behind by the French were nationalized and distributed to the country's peasant population. The one party system led to the formation of new political parties after the adoption of a new constitution in 1989. This new-found freedom resulted in the creation of the Islamic Salvation Front (FIS), a fundamentalist movement that was widely embraced by the peasant population. In the election of December 1991, the FIS won nearly enough seats to take control of Algeria and a runoff was slated to be held in January of 1992. Unfortunately, the country's army stepped in and canceled the elections which plunged Algeria into yet another civil war. Further changes to the country's constitution in 1996 banned Islamic parties and increased the power of the President. A period of amnesty was granted to members of the banned FIS and this has resulted in a reduction of violence within Algeria.

Now on to information about Algeria's oil and gas industry.

Algeria joined OPEC as a Full Member Country in 1969 member and, at 2.4 million square kilometres, is OPEC's largest Member Country in areal extent. Hydrocarbon production forms a very important part of Algeria's economy accounting for 60 percent of government revenues, 95 percent of export earnings and 30 percent of gross domestic product. Algeria's first oil discovery was made in 1956 (Edjelleh) and oil production began in 1958. Algeria's largest field, Hassi Messaoud, was also discovered in 1956 and contains an estimated 6.4 billion barrels of proven oil reserves. Hassi Messaoud is also the country's largest oil producing field by volume, producing over 400,000 BOPD. According to OPEC, Algeria has proven oil reserves totalling 12.2 billion barrels (or 1.1 percent of OPEC's total oil reserves) and proven gas reserves totalling 159.9 Tcf. Fortunately for Algeria, their crude is among the highest quality in the world with a gravity of 45 degrees API and minimal sulphur content; this type of crude commands a premium price and is in particularly high demand among European Union nations who refine Algeria's low sulphur oil to meet their stringent environmental standards for gasoline and diesel. Algeria's oil reserves put them in third last place among the 12 OPEC nations in terms of total proven oil, just ahead of both Angola and Ecuador. Among African nations, Algeria comes in a rather distant third place in terms of reserve size after both Libya and Nigeria but ahead of both Angola and the Sudan as shown here:

Algeria's OPEC quota is 1.216 million BOPD and their domestic consumption is 310,000 BOPD with exports of 747,000 BOPD. Here is a pie chartshowing Algeria's share of OPEC’s total reserves in 2009, the key number that impacts their official and much ignored quota:

Of course, statistics given for Algeria by the United States Energy Information Administration (EIA) vary somewhat from those provided by OPEC. According to the EIA, Algeria produced 1.42 million BOPD in 2008 along with 450,000 BOPD of condensate and 357,000 BOPD of liquids for a total of 2.23 million BOPD of liquid hydrocarbons. This total production of liquids was up from 2.17 million BOPD in the previous year.

In yet another take on Algeria's oil production statistics, the BP Statistical Review of World Energy 2010 estimates that Algeria produced an average of 1.811 million BOPD in 2009, down 9.1 percent from 1.993 million BOPD in 2008. In the past 10 years, the country's oil production peaked at 2.016 million BOPD in 2007 up from a low of 1.515 million BOPD in 1999.

Algeria's state oil company Sonatrach operates most of the oil and gas production in Algeria but over the past 20 years, the country has increasingly opened its oil industry to outside companies. This is in an attempt to both maximize production from existing fields and to explore for and develop new fields to replace declining production in fields some of which are over 50 years old. The largest foreign oil operator in Algeria is the American company Anadarko, who now has total production capability of more than 500,000 BOPD. Other foreign oil companies include Italy's Eni, BP, Conoco-Phillips, Gazprom, Shell, Statoil and Total. Recent licensing rounds for exploration and production rights have included a mandatory back-in for Sonatrach who will retain a 51 percent interest in every contract offered.

Algeria's is one of the world's largest oil exporters. In 2008, the EIA estimates that the country's oil exports reached 1.93 million BOPD. Of that 1.93 million BOPD, the United States imported 547,000 BOPD representing 28 percent of the total volume produced; from the American viewpoint, this volume amounted to 4 percent of the total U.S. energy imports for that year. From this bar graph, you can see just how important Algeria's crude is to the United States economy, certainly far more than Libya's modest exports of 80,000 BOPD to the U.S. in 2009:

The International Energy Agency estimates that in 2007, 24 percent of Algeria's oil exports went to OECD nations including the Netherlands, France, Spain, Germany and the United Kingdom.

Natural gas is also a very important Algerian asset. Their natural gas reserves of 159.9 Tcf put them in second place in Africa and eighth place in the world as of the beginning of 2009. The country's first gas field, Hassi R'Mel was discovered in 1956 and contains about 85 Tcf; it currently produces about one-quarter of Algeria's total daily gas production. In 2007, Algeria produced 3.03 Tcf of natural gas (averaging about 8.3 Bcf per day) making it the sixth-largest natural gas producer in the world and the second largest among OPEC nations after Iran. Here is a bar graph comparing Algeria's natural gas reserves to other African nations:

Domestic consumption accounted for around 0.93 Tcf annually in 2007 leaving 2.1 Tcf for export in the same year. Two-thirds of Algeria's natural gas is transported to Europe as raw gas through a network of pipelines with the remaining third being converted to LNG and exported to various nations including the United States. Here is a pie chart showing showing the recipients of Algeria's natural gas exports by volume:

Here is a bar graph showing the top five beneficiaries of Algeria's LNG exports:

From what you can see from this information, it is quite apparent that Algeria is far more important as a supplier of energy to the United States and much of Europe than Libya. The mid-February 2011 arrest of hundreds of demonstrators in Algiers by thousands of riot police and the country's history of both civil war and suppression of democracy should give us even more cause to ponder how seriously the world's energy markets would regard supply disruptions of both oil and natural gas from Algeria should history repeat itself and the country erupt into yet another period of civil war. The similarities between the situation in Egypt and Algeria is rather striking on many levels; citizens of both nations suffered from poverty, high unemployment and a very large cohort of young men and women dissatisfied with their lot in life. Unrest in Algeria lies just below the surface.

Beyond the numbers you have to know better about the situation in algeria. The situation in algeria is different. The 1988 popular revolt and the ensuing conflict in the 1990s brought mixed results on the political and the freedom fronts but did not solve all algeria's problems even though some progress was made on the economic side due to high revenues from oil but it is definitely different from egypt (look at GDP/economic numbers)?The previous conflict also brought some popular awareness about violent protests with some lessons learned. That explains the low turn out for protests called on by unpopular politicians that are seen as self serving. So my bet is that some change will come to algeria but in a peaceful and gradual pace...and many signs are already showing a move of the country in that direction.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.